Don’t forget the rising deficits. Fiscal irresponsibility is very often followed by a weaker currency. So, trade deficits, check, low savings rate, check, high consumer debt, check, rising government debt, check…be pretty damn amazing to have a strong greenback 
Indeed yes, continued high deficits…
All in all rather amazing the dollar has held out. Of course all this built up pressure to come down makes it worrisome the correction could get ugly if not looked after.
[sub]Now CG my man you aren’t implying the Bush Admin. brilliant solution to all economic issues all the time, tax cuts, may be fiscally irresponsible, are you?[/sub]
The fiscal irresponsibilty is caused by the spending, not the tax cuts.
Spending=$25 trillion over ten years
Tax cuts=$2 trillion over ten years
Seems like you are looking at the small problem instead of the big problem.
adaher let me clarify. Normally one would expect more fiscal responsibility out of a conservative GOP government that controls both houses of congress. That is not what we are seeing at present. As you point out, tax cuts are but one manifestation of fiscal irresponsibility.
I’m not here to bash Bush, but Christ on a pogo stick, the economic policies suck. Tax cuts appear to be nothing more than a cheap trick to win votes. Timing of the Iraq war more to do with bringing down the price of oil to influence the economy/election than with any of the other reasons put forward. [waiting for the end of the summer would probably make it too late in the game for the oil price reductions to help at the polls.]
I agree, which is why even though I consider myself to be a right-winger, I can’t vote for Bush in 2004. He has increased discretionary spending by 22% over the last two years. His spending increases have cost more than his tax cuts. Which is why I get so upset when people bash the tax cuts but seem to be okay with his massive spending increases.
It almost seems as if some people want taxes to be raised and for spending growth to continue ad infinitum.
No, my dear fellow, fiscal irresponsibility describes the overall fiscal position of a government in terms of its balancing revenues against outlays in the context of policy needs and an overall economic and fiscal position.
In the context of a country with fairly large, although not unmangeable debt stock, with some large future challenges in regards to financing various expected outlays such as retirements and security needs, a series of revenue reductions loaded to the future but sold as near term stimulus seems problematic. All the more so that we have fine recent re analysis predicting ever larger gov’t budget deficits in the next decade. The present Admin blithe response that the expected deficit flow can be met with pure spending reductions rather flies in the face of political reality given the implied reductions in service would be severe.
The present Admin. is gifted with a Congress that its own party controls. It can more or less achieve economic policies it wants within reason. Should they have been serious about fiscal discipline - where both revenue raising and spending are in play - it strikes me that a less ideological but more fiscally prudent set of policies could easily have been brought to the table. their lack of courage in presenting real economic policy does not bode well for the blithe statements re budget reduction. Ideological whanking.
The Bush admin, from trade issues to taxation issues has shown a rather poor grasp of economic policy, although a keen grasp of American domestic politics.
On trade issues I agree with you 100%.
On taxation, I disagree. Spending is the problem. The taxation end of it is practically peanuts compared to the spending.
According to the report that some in the press think Bush was trying to squelch, we will need $44 trillion to cover the Baby Boomers retirement. A $2 trillion tax cut is a drop in the bucket compared to that.
Reform entitlements and the tax cut won’t be an issue. But rescinding the tax cut won’t do much to improve the fiscal situation. It’s like putting a Band-Aid on a bullet wound.
Especially since tax revenues never go to securing our future obligations. It always gets spent. Remember that tax increase in 1983 that was supposed to save SS? It all got spent. If we rescind the tax cut, it will just get spent again.
And again our accounts are out of balance.
I think it’s pretty silly to count only the spending side as ‘irresponsible’ as it’s the overall that truly matters. If the federal government was spending a trillion dollars and receiving a trillion dollars +1 it wouldn’t have an effect on interest rates and the position of the dollar against other currencies.
Yes, some form of social security reform is needed, but I think it’s unrealistic to expect congress to face it until it’s a crisis. When social security starts bouncing checks or the tax burden becomes so great that workers standard of living begins to collapse we’ll begin to see motion…not before.
And whatever happened to saving, anyway? I find it strange that the administration actively encourages less savings by asking consumers to spend as a means of increasing the economy. Better still to encourage people to pay down (or off) consumer debt and free up monthly cash flow. That would increase personal security AND send more money through the economy (rather than just to lenders).
The spending side is the bigger side.
In 2001, we had a $159 billion deficit. $40 billion of that was the tax cut. So even if you had rescinded the tax cut for that year, you have a deficit.
For the next ten years, outlays will account for more of the federal debt than the tax cuts. So I’m not sure why anyone would concentrate on the smaller problem unless they consider ever-increasing spending to be a good thing and see tax cuts as a threat to that spending. That’s why I think the complaints about deficits are often disengenous. I remember back in the 70s it was considered somehow mean-spirited to want to balance the budget. That kind of rhetoric came from liberals in the 90s again when the Balanced Budget Amendment was being debated. “We should not balance the budget on the backs of the children.” So apparently deficits aren’t the problem. It’s the fact that tax cuts force spending restraint.
This is just stupid.
The problem is fiscal discipline, taxation/spending are part of an overall process.
If I heard from a company that it’s their spending that’s their problem, and not their revenue generation, and their accounts were analagous to the US, I’d tell the CFO he was a fucking idiot. The problem is both, in conjunction.
The voting public expects a certain level of services. Now, they can either be told to except reductions or pay more.
Saying “it’s spending that is the problem” is merely mindless conservo speak for not facing up to the fact the mythology of small government does not meet the reality of modern public expectations.
So, one can face it and start selling fiscal discipline on a rational basis, or one can play this bizarro world game of delaying the pain of paying for current expenditure by running up bills but not billing the present generation for it.
It is that little game that encourages fiscal indiscipline. This bloody excuse making of “raise taxes and it’ll just be spent” is the worst form of mindless excuse making finger pointing. It’s economically ridiculous and logically bankrupt.
Either work on fiscal discipline, sold on rational basis (not Deficits are Evil but too big is bad), or stop pretending.
Well that rather follows from the fact that there is a fucking deficit, now doesn’t?
Repeating this little fun house mirror of finance doesn’t get us to an understanding of the problem.
Conservatives want to cut government size, fine. Sell that. This idiocy of starving the government for current revenues on some vague ideologically driven fantastical hope that this controls government spending is pure bullshit. The 1980s saw that.
Either one begins to bite the bullet or one does not.
**This is just stupid.
The problem is fiscal discipline, taxation/spending are part of an overall process.**
True. But I’m hearing no complaints about the spending side accept for conservatives.
**If I heard from a company that it’s their spending that’s their problem, and not their revenue generation, and their accounts were analagous to the US, I’d tell the CFO he was a fucking idiot. The problem is both, in conjunction.
**
Companies can’t just coerce money at will. When companies are short on revenue, they cut spending to get their finances back under control. A company can’t just wish revenue into being.
**The voting public expects a certain level of services. Now, they can either be told to except reductions or pay more.
**
There is much in the budget that voters neither need nor want. More than enough to cover the tax cuts.
Go to CAGW’s website and they have all the crap listed in their Pig Book.
**Saying “it’s spending that is the problem” is merely mindless conservo speak for not facing up to the fact the mythology of small government does not meet the reality of modern public expectations.
**
You must be living in the 60s. Americans want smaller government now.
**So, one can face it and start selling fiscal discipline on a rational basis, or one can play this bizarro world game of delaying the pain of paying for current expenditure by running up bills but not billing the present generation for it.
**
In other words, spending must increase in perpetuity, and taxes along with it. Anything less would be uncivilized.
**It is that little game that encourages fiscal indiscipline. This bloody excuse making of “raise taxes and it’ll just be spent” is the worst form of mindless excuse making finger pointing. It’s economically ridiculous and logically bankrupt.
**
And it also happens to be 100% true. The example of the 1983 FICA increase, none of which actually shored up the SS fund, but instead went to other programs.
Either work on fiscal discipline, sold on rational basis (not Deficits are Evil but too big is bad), or stop pretending.
The only thing you are selling is raise taxes to cover whatever spending plans Congress has. I pefer to advocate smaller government. Less taxation, less spending, fiscal discipline.
High taxes and high spending is not fiscal discipline, even if the books are kept in balance in the short term. Eventually the obligations get out of hand and there is no more revenue to draw on.
And this justifies your silly harping on “Spending bigger” how?
No, a company can not simply “coerce” revenues, but it takes actions to generate further revenue – if there is pricing power, you raise prices, perhaps you market more etc.
The point being, to focus on only cost cutting is plain stupid. If one is responding strategically to a situation, you need to understand where the overall issue lies, whether it makes sense to run red for a period while spending on items that are going to generate future revenues, etc.
Lopsided analysis with an ideological driven focus on spending is just foolish.
Pure assertion.
Get me the damn citation and present some support for your assertion, including the assertion “the voters” don’t want it.
Again assertion.
Sure Americans say they want smaller government. They also seem to love services.
It’s not a fucking matter of me living in any particular decade - I bloody don’t even live in the States anymore so my bloody taxes pay for services I will never use period.
Rather it is simply realizing the simple minded assertion “Americans want smaller government” doesn’t tell us much about the real political economy, people say lots of things, the reality is they like services, don’t like paying for them. In the aggregate.
So, either one starts to make the costs visible – that means paying for them – or one postures endlessly and runs up debts.
Don’t rephrase things you don’t understand.
The statement is clear: deal with the budget on a rational basis, sell the fiscal discipline on that basis and stick to your bloody guns.
If “Americans” really want smaller government, making the cost of current government felt clearly and transparently will do that. If not, well that’s the voters choice. I have to pay for services one way or another. [sub]BTW CG, did you see that our taxes appear to being raised? At least the note I saw so indicated, not sure if that made it through. Screw the expats, why not?[/sub]
It is far from being 100% true.
However, this subject of this thread is not the US Budget, want to discuss your impoverished understanding of budgets, start another bloody thread.
The subject of the thread is the US dollar and capital flows. If you have anything to add on that, please do, otherwise, open a thread for your budgetary reflections.
Grandfather me in on the budgetary reflections please. Threads do wander.
adaher, I haven’t seen you much about so far. You seem to have interesting things to say.
Everyone here seems to agree that the current fiscal stance of the US government is “irresponsible”. Despite the fact that I disagree with the composition of sending and tax changes, I wonder why that is. The economy’s in recession. Monetary policy is like pushing on a string in times of downturn and already low nominal and real interest rates. Why not a bit of fiscal stimulus? I suppose the high CAD is the answer, but - and this is where this discussion is germane to the OP - only if you care either about the value of the $US or think that the rebalancing of portfolios involved in a big switch is going to have big real effects or unacceptable distributional ones (I take it no one cares at present about the other risk involved with rapid depreciation - inflationary pressure).
Unsustainable levels of government debt? Bah. An unsustainable path of debt? Going into defict in a recession does not necessarily signal that.
That being said, my political biases read this as an opportunistic looting of the treasury for partisan benefit, not as a response to recession.
Onto “controlling leviathan”: both Collunsbury and adaher make fine points here:
But adaher’s point should be taken seriously:
I don’t think the idea that if you cut taxes unsustainably expenditure will eventually follow has been discredited (even though I think it is highly obnoxious). Since the eighties, taxes as a proportion of GDP have fallen across the industrialised world, even though deficits initially took up the slack. (Not all countries engaged in the same pattern of behaviour as the Reagan Whitehouse of course.)
The tricky bit is that there is no clear “we want smaller government” message from the public. They want lower taxes, but they want greater services and they don’t like to be told they can’t have both. Their fantasy is only indulged by minutiae about government waste.
Yes, well bickering over US budgetary policy is of not terribly much interest to me.
Well, a bit of fiscal stimulus is one thing, however the manner in which it is structured and delivered is another.
A brief fiscal stimulus directly applied might not be a bad thing although I am not at all sure the US economy needs it. I fail to see any rational argument for the tax cuts as fitting such a bill – indeed I may point you to the Economist which described the idea as “absurd” – that is the current tax cut package is actually a stimulus aimed at current slow down. As we both know, the Economist is harldy anti-tax cuts, however it is at least intellectually honest.
The entire point of my OP of course was that given current imbalances in the US and globally and the fragility of all major economies, a too rapid depreciation in the dollar contains some system risk in it. With global deflationary pressures, and in the US, obviously for the US economy a bit of inflationary pressures is not of necessity a bad thing.
I think we might get into, however, a bit of a problem if we look at potential interest rate responses to ballooning deficits at the same time as a J curve kind of effect in the case of a further rapid dollar depreciation.
I agree, my comments were towards the forward part of the cuts and the projections. Of course, projections a decade out are… perhaps not worth these little electrons.
I don’t think it is political at all, anyone who looks at it clear headedly has to conclude the cut as a stimulus is not very logically structured.
Indeed they have, but I do not see that these are deficit driven as much as tax driven. Change in approaches and models.
Precisely my point. Have cake, eat it too, oh yes you can. And you can even do this while railing on about the evils of either having the cake or eating.
Well, I’ve been playing with gold (in & out, 'cause it jumps around like crazy) since 2000 expecting something like what we’re seeing: I figured after all that partying in the 90s that there was going to be something of a hangover. On Bush’s tax policy, since we seem to have gotten hung up on discussing this, I was actually for the first tax cut on grounds that a recession was inevitable, and I also was for the dividend cut on grounds of corporate governance. But I have to say that the extent of the Reagan rerun we’re seeing here, in terms of increased spending on defense while attempting to starve everything else by cutting taxes to force a crisis in the rest of the government’s spending, surprises me. Or did. At this point nothing about this Admin will surprise me anymore.
Gold isn’t ready for another big up move yet, and I do think the dollar is due for a nice bounce, simply because nothing goes in a straight line forever, so whoever gave Bush that script to read timed the statement rather well, IMO. But longer term, piling a fiscal deficit on top of the ballooning current account deficit (combined with a radical shrinkage in FDI, which makes it really dangerous) is going to cause big problems. I rate the chances of a true currency crisis, where the central bank raises interest rates to try to stem a run on the currency and finds that this has no effect whatsoever, at better than even sometime in the next few years, especially if Bush gets re-elected, which I fully expect. There’s lots of things that can go right and prevent a crisis, but so far I don’t see a lot of deliberate attempts to make those things go right.
Then it’s the responsibility of Eurozonies to weaken their own currency. They keep insisting on central bank policies that keep their currency excessively high. They deserve to reap the full rewards of pursuing that policy.
Other than illustrating that you do not understand international currency issues, what was the point of this response?
CB policies in the Eurozone are not “keeping the Euro excessively high” - the readjustment between the EUro and dollar exchange rate is driven by declining attractiveness of US assets absolutely and relative to demand for US dollars as well as continued low US domestic saving rates.
There is fairly little the Euro zone can do to “keep” their currency “excessively high” given the weight of overall pressures so this Europhobe response is rather meaningless. What is of concern - for all actors in the international markets is an overshoot and potential destablilization of the capital markets. Insofar as the US is rather heavily dependant on international capital flows to finance its twin deficits and also allow private investment, the greatest concern regarding a severe adjustment in the dollar is and should be America given the expected impact on FDI to the US as well as current stock.
An orderly depreciation that neither moves to quickly nor over implied equilibrium is a good thing, over all, although as noted previously in this thread there are some interesting tensions in the economies given pegging to the dollar found in Asia.
Well, we’ll find out if his comments (and subsequent badgering on the other side) were smart over the next few weeks. Today, the ECB cut rates by 50 bps. The response? The EUR strengthened. Cited reasons for this by the guys I read were a) perception that Greenspan will do a tit for tat at the next Fed meeting, b) perception that 50 bps is spit in the ocean, even after Deusenberg left open the possibility for more cuts and c) perception that the Europeans think the 50 bps will solve the problem when in fact larger structural reforms are needed.
This is pretty much what Snow was signalling when he made his comments – that the US wouldn’t stand up and take responsibility for slowing the slide and that the Europeans had to do the necessary work. But a) it remains to be seen whether the currency moves today will convince the Euros that he’s right, b) Greenspan may very well tit for tat, which would be bad (IMO) and c) Bush’s comments on the dollar make it clear that he’s flying paper airplanes or something during the part of the cabinet meetings that talk about dollar policy, so he sure as shit ain’t gonna listen to the part about trade.
Frankly, I’m starting to feel bad for the guy. Looks a little like he’s got a small finger in a big dyke.
I’ve always wondered about something… and I hope my question here has an analoguous attachment to the OP…
Prior to 1983, my country (Australia) had a fixed exchange rate with the US dollar… however, in 1983 it was made a floating exchange rate. We initially went through some hard times as some cold realities of trade performance, and trade competitiveness, rammed their points home.
Hawthorne (a most knolwedgeable person on these matters to be sure) will be able to answer my question, but Coll, please feel free to chime in as well… what are the pro’s and con’s of a fixed exchange rate (from a non USA point of view) to the US dollar? Escpeially in the context of back then, compared to now?
Also, I see on the news nowadays that the AUS dollar is portrayed as a relative worth to both the US dollar AND the Euro dollar. Is there a chance that countries might be tempted in the near future to start trading in terms of Euro dollar’s worth? And that the era of the US dollar being the supreme yardstick might be coming to an end?
I ask this latter question out of a mathematical curiosity… namely, currency exchange rates are all amorphous intangible “man made” exercises in relativity regardless… hence, if the supreme yardstick which is used to guage that relativity is artificially being stretched to appear longer than it is, is it not wiser to merely start thinking in terms of a new yardstick? (In this instance, the Euro?)